By Mohamed Elmi
Tuesday January 10, 2023
Dear William and Jacob:
I've read and followed with interest Coastline Exploration's Production Sharing Agreement (PSA) with the Federal Government of Somalia (SFG) on October 21, 2022. The agreement grants your company an exclusive contract to seven (7) offshore blocks that are within the areas under the direct control of SFG. Information about the PSA, the company’s current market valuation (if any), its physical assets (i.e., mobile or fixed platforms or rigs) and details about the designated offshore fields within Somalia’s territorial sea and Exclusive Economic Zone is scarce.
Several hydrocarbon study projects show that Somalia is one of the last unexplored oil and gas frontiers (see Mapping Oil Exploration in Somalia and Ethiopia, 2016). While oil exploration and development play a vital role in the global economy, ideological and clan-based conflicts in Somalia have hampered oil discovery. President Hassan believes the signing of the PSA should deliver "material benefits for all Somalis".
However, the president ignores the real cost of his good intentions that would probably improve the living standards and wellbeing of Somalis if and when oil is discovered and developed. The processes, systems, and infrastructure needed to undertake these types of projects are extremely complex and capital-intensive, meaning production and refining of oil products barely create jobs for the local economy. For countries that lack checks and balances or strong institutions, the small share of profits generated is prone to misappropriation and embezzlement. The process is even more volatile in an unstable political environment and can trigger armed struggle over territoriality and the ownership of the resources. Africa Oil and Ranger Resources are some of the small companies that had previously failed in these endeavors. See the Warsangeli-Puntland conflict (2006 - 2013), by Markus Virgil Hoehne published at JSTOR.
Per the company's website, Coastline Exploration was founded in 2018 in Houston, Texas with a particular interest in exploring Somalia’s untapped offshore oil and gas potential. The company's founders drew their inspiration from the recent discovery of oil and gas in East Africa and the confirmed working petroleum system that North Somalia shares with Yemen (see the map). The founders are overall sanguine about the oil-sourcing potential in Somalia. However, Somalia still lacks a unified national government; the rule of law in the areas under the control of the SFG, which the company intends to explore, is to a large extent nonexistent since the SFG declared war on the insurgent group, al-Shabab. After decades of international backing and support, The SFG is still struggling to build consensus that should lay down a working system of governance and of justice. The country as a whole is fragmented along clan lines in the form of semi-autonomous regions that often defy or question the legitimacy of the SFG.
My concern was elevated when I read an article by Reuters, which reported that no government officials were reachable for comment after your company paid a $7million signature bonus to the Somali authorities for signing the PSA.
Granted the company is obliged to comply with the PSA it has signed and the laws under which it is incorporated (including environmental standards), I hope you will consider the issues highlighted in this letter and share any information or insight that might keep the process of exploration transparent and equitable for the hapless Somali people.